More Special Dividends Coming; Here’s Who To Watch

By Johanna Bennett

As the so-called Bush tax cuts near their expiration date at the end of 2012, a flurry of companies have announced plans to pay special dividends. If Congress doesn’t act, the cash payments companies make to shareholders could be taxed at rates as high as 43.4% starting in 2013, versus the current 15%. Thus the mad dash to reward investors by companies with excess cash and no particular plans for it or those looking to change their financial structure.

That rush isn’t over, according to a report by Markit Dividend Research.

Analysts Chaitanya Gohil, Virgil Calahong, and Burke Lodge predict 31 companies could announce and pay special dividends by the end of the year. That’s on top of the 32 firms that broke the news last month.

Which companies? The report obtained by Barrons.com only listed five names — Franklin Resources (BEN), Werner Enterprises (WERN), Knight Transportation (KNK), Sun Hydraulics (SNHY) and Young Innovations (YDNT). A complete list isn’t available until Markit sends the publication to its clients on Nov. 13.

This isn’t the first time corporate America has made a last minute rush toward special dividends. The same thing happened in 2010, when the Bush-era tax cuts were first scheduled to expire only to win a two-year reprieve.

To gauge likely payors, Markit looked at a number of factors, including insider ownership. According to the report…

In our view, insider-holdings are the key variable in projecting special dividends in this unique tax environment. When ownership is concentrated at the executive and board level, it expedites decisions to announce one-time special dividends at the current favorable tax levels. This was evident in Q4 2010 where average insider holdings of companies declaring special dividends were 30%.